The annual THINK conference was created to advance the credit union movement by engaging credit union employees with big ideas, network with like-minded people and gain some perspective on future challenges and opportunities.

The most rewarding part of the THINK conference is the opportunity for attendees to give back. The designated charity, Children’s Miracle Network Hospitals, is the perfect match for the credit union movement: Raising and keeping funds in the community in which they were raised to help local children.

A tradition of THINK conferences, the 2012 gathering included three scheduled charitable events: a golf tournament, a 5K Run/Walk and an “interactive cooking challenge”.  At the THINK 12 Gala & Dinner, host CO-OP Financial Services donated a further $10,000. In addition, Transaction Network Services Inc. donated $75,000: “TNS is focused on supporting organizations that help provide a brighter future for children,” said Mike Keegan, President/COO of TNS, Reston, Va. “We initially became involved with the Children’s Miracle Network Hospitals after seeing the passion of CO-OP and its credit union members for this important cause. We look forward to continuing our support of CMNH.”

The donations throughout THINK 12 and by the two companies totaled $89,716. As Stan Hollen, CO-OP President/CEO said: “It’s not just a slogan; people in this industry really are committed to the well-being of others.”

Credit Unions care.

THINK True
Culture is the sum of beliefs and values that shape norms of behavior and dictate the ways things get done. There are several continuums that help define an organization’s culture. Is your credit union driven by results and achievements, or relationships and people? Does your organization have an external focus , or an internal focus? Is your credit union adaptive and flexible, or is it structured and stable.

Culture tells you a lot about an organization. Culture determines the true self of your credit union. Is your outward communication aligned with your culture? If not, how can you change that?

THINK Connected
It’s not the products and services that matter to people; it’s the emotional connection to brand. You can’t build trust through advertising, you have to build it through the consumer experience. Customers want to communicate with a brand on their terms, through their preferred channels. The community aspect of credit unions is appealing to your members and prospects. The more you create a sense of community, the more people will be attracted to your products and services. Humans are connections, give them what they desire.

THINK Change
Change is hard and it can be expensive. Still, the cost of not changing might be more expensive and, ultimately, ruin your business. Average in-branch transactions per month across the United States will plummet 56 percent between 2006 and 2015. In three years, 50 percent of your members will use the smartphone as a primary device for their banking. In just a few years, the majority of your members have changed their behavior; credit unions still base their business model on old behavior. Behavior is at the core of the future of credit unions: Banking is no longer a space where you go, it’s a thing you do.

THINK Joy
Every financial institution sells comparable products. Trader Joe’s sells groceries just like other stores. Their biggest difference is how they do it: Integrity of design, employees are “crew members”, hiring the right people that have a passion for the brand experience. Credit Unions should consider hiring outsiders with fresh, diverse ideas, people that consider creativity a team sport. Focus on people with the ability to connect, not how fast they can complete a task. Hire frontline staff that can deliver delight and joy.

THINK Small
Let’s face it: Credit unions will never be able to compete with the massive marketing budgets of the Wall Street giants. That can be a good thing. We shouldn’t try to compete with banks, we have to communicate the other solution: Think small. Consumers are fed up with financial institutions that are too big to fail; they desire community banks that are big enough to care about their money. Being small is a strength that credit unions should call out of more often and be proud of.

The self-service model has evolved over time and has become very common in our daily lives: ATMs, Redbox, eCheck-in at airports, check-out counters in supermarkets, even cupcake ATM’s. In the late 90’s, we coined the phrase “Web-Enabled ATM”, a more open environment. As mentioned in many THINK 12 sessions, the industry tore the whole closed ATM system down and reassembled the pieces to create a new system. At that time, the industry was focused on getting the best technology. Today, we’re more focused on the consumer experience.

CO-OP Financial Services and ATM manufacturer Diebold have just announced a shared effort to bring video communication to ATM transactions, allowing members to connect to a call center customer service representative for real-time, “face-to-face” interaction via two-way video. This is another opportunity for credit unions to reach out to the next generation of customers and support them in getting their tasks done.

CO-OP NextGen ATMs helps your credit union to maximize the ATM channel:

• Leverage your investment in Diebold Opteva terminals with a software-only shared branching innovation.
• Gives your members full-service access to their accounts, and direct control over transactions that traditionally require a teller.
• Increase branch efficiency by alleviating teller lines.
• Generate acquirer revenue via your issuer module, saving the expense of buying an acquirer module.
• Provide expanded, self-service and shared branching access 24/7.
• Expand your branch reach without the expense of brick and mortar.
• Differentiate your business from big banks with credit union-unique shared branching.
• Deliver a shared branch experience that sets you apart from other financial institutions. Integrate both ATM and shared branch self-service transactions into your existing channel-management process with CO-OP, utilizing all current ATM reports, monitoring, management and other tools.
• Gain an additional benefit from your terminal driving and processing from CO-OP.
• Extend shared branch transactions in the more than 1,700 credit unions and 32 million members in the CO-OP Shared Branching Network when your credit union participates in shared branching.
• Build a foundation for future capabilities with the IFX terminal handler.

As Jeff Norris said at THINK 12, CO-OP is the rocket and your credit union is the payload. We provide the foundation and you have the freedom to customize your ATMs according to the needs of your members.

Heating up the EMV Conversation
The terms EMV and chip are often used interchangeably. EMV is an open-standard set of specifications for smart card payments and acceptance devices developed by Europay, MasterCard and Visa in 1993 to ensure interoperability between chip-based payment cards and terminals.

EMV is a fraud fighter: EMV integration results in card fraud reduction from counterfeit, lost and stolen cards. Good news: It’s almost impossible to create a counterfeit EMV card.

EMV is a need of world travelers: U.S travelers are reporting trouble using their magnetic stripe cards internationally.

Timeline:

• October 1, 2012: Merchants will be exempt from PCI reporting.
• April 13, 2013: Merchant acquirer processors and sub-processors must certify support for and accept VISA EMC.
• October 1, 2015: Liability shift for counterfeit POS frauds will be assessed to the part that did not enable the EMC transaction.
• October 1, 2017: Same as above but for automated fuel dispensers.

CO-OP Alignment

• EMV is a board level priority for 2012.
• Phased Approach: On behalf of services – no host changes. Online PIN, Offline PIN, Offline Processing.

What should credit unions do?

• Be clear about the primary reason for moving forward: Is an EMV-enabled prepaid card an option? Card cost has decreased. Program certification required.
• Plastics vendor: Chip and magnetic stripe personalization. Chip card requires additional personalization which is different from the magnetic stripe.

Considerations

• NEW BINs/prefixes
• Member issuance
• Member fees
• Card producer
• Graphic design staff impact and training
• Member education
• Timeframe to implement

Mobile Wallet
Google introduced Google Wallet, the app, enabled by NFC technology, eight months ago but is still struggling to find carrier and device partners. Apple still hasn’t introduced the iPhone payment yet, rumors abound that it is in the production design phase for the iPhone 5. iPhone payments could run through the iTunes store account using any card. In the end, carriers may control the destiny of the mobile wallet.

Isis, a joint venture of Verizon, AT&T and T-Mobile just got backing from Wall Street. The big question for Isis: Will retailers follow?

CO-OP Alignment

• Logical and progressive expansion of service: Single member relationship, member-to-member, member to anyone.
• Single point of access.
• Once you have the wallet, what will you have in there? Drivers license, ID card, etc. – we need a universal identification system. How will we transact?

P2P Payments

• New types of online payment solutions are welcomed by consumers.
• Looking for the ability to easily and securely send money to family, friends and merchants.
• The opportunity: 70 million individuals bank online – Consumers trust the online payment medium, confidence in P2P will follow.

P2P Payments Through Facebook

• American Express recently launched the Serve app, a digital wallet platform for P2P payments through Facebook: Consumers can send, receive and request payment through Facebook.
• PayPal launched a similar app that lets users send money to friends within their social network.

CO-OP Alignment

• The “secret sauce” …  Real time good funds model
• The infrastructure connectivity: Online real time connections, extended message capabilities and ATM network.
• Me2Me, Me2U, Me2Anybody

Real-Time Fraud Detection and Prevention

• Consumers, particularly Gen Y, have become accustomed to getting information in real time, through smartphone alerts: Weather, Sports Scores, Breaking News, etc.
• Two out of three American consumers believe that financial alerts useful and valuable.
• By 2014, 41 percent of online households – 62 million – will receive financial alerts.
• Mobile alerts build confidence, earn trust and increase member satisfaction.

Preventing fraud with alerts

• U.S. consumers and financial institutions suffered over $37 billion in fraud losses last year.
• One-third to half of fraudulent transactions are identified through slow means.
• More immediate alerts are necessary, with about half of fraud losses occurring five days after an intrusion.
• Financial institutions that use this channel to combat fraud can experience up to a 50 percent reduction fraud losses.

CO-OP Alignment

• Start with individual services: Sprig, Bill Pay.
• Others as we integrate: Debit, fraud notification and prevention, transactional, card controls and merchants/locations.

Mobile Capabilities

• Gen Y will surpass Boomers and Gen X in numbers and incomes in the next 10 years.
• How do you capture this demographic?
• As heavy smartphone users, Gen Y expects information to be available in real time, including financial information.

CO-OP Alignment

• Mobile is a key strategic alignment to the new trends
• Leverage a single connection to enable mobile
• Fast, easy and economical to implement
• Branded or generic
• Diverse device support
• Tablets
• P2P

CO-OP – The “Single Connection”

• Strategy isn’t always the new product solution: Service, bundling, market positioning, product positioning, integration and expertise.
• Multiple factors translate to value add.
• Self-Service Kiosks – NextGen ATM – A new Generation in technology and member service.
• ATM Managed Services
• Revelation – Portfolio analytics may hold the key
• Merchant Funded Rewards
• Comprehensive Analytics Revelation: Debit, ATM, Shared Branching, Credit
• Credit – Full Service and Pass-Thru
• P2P – on the immediate horizon

Shared branching has been called one of the greatest expressions of the cooperative spirit of the credit union movement. That’s why we had to get it right. Among the highlights:

Value to Credit Unions

• National Branch Presence – CO-OP Shared Branching now includes more than 6,800 locations.
• Powerful, collaborative innovations of shared branching, self-service kiosks and new delivery/payment opportunities using the shared branching interface.

Future Vision for CO-OP Shared Branching

Streamlining processes and procedures will improve member service experience, create credit union operational synergies, lower fraud and compliance risk and allow us to scale efficiently.

Specific initiatives:

• The rules: One set of common rules for in- and out-of-network members.
• Adjustments: Reducing risk by streamlining the adjustment system.
• Single Locator: Merging multiple locators into one place.
• Middleware overhaul: Technology will be aligned with changing demands.
• All-in: The goal is to have everybody in shared branching.

The CO-OP Shared Branching interface will serve as a platform for innovation and connectivity for all physical and remote delivery channels. Imagine a common mobile P2P network for 80 million consumers! We ultimately will innovate the international shared branching model to support the financial cooperative movement worldwide.

A Little Reminder

Shared Branching is more valuable than ever:

• 24 state networks
• 50 states, Puerto Rico, Guam
• 44 standalone locations
• 4,538 locations total
• 2,200 retail kiosk locations
• 110.8 million transactions per year
• 43.8 million members represented
• 1,750 credit unions
• $451 billion in assets represented

Various asset sizes are participating in shared branching. CO-OP Shared Branching is the fourth largest branch network in the United States, represented in all 50 states: a very strong message to consumers.

The session was hosted by Jennifer Kerry, Vice President, Credit Issuer Processing, CO-OP Financial Services. Discussion participants included Ondine Irving (Owner, Card Analysis Solutions), Tim Kolk (Owner, TRK Advisors, LLC) and Brian Scott (Vice President, Sales, The Members Group). The topic: managing a credit card portfolio.

Ondine Irving: Internally, not many credit unions are managing their credit card program. Externally, not many credit unions are pushing their credit cards.

Tim Kolk: Credit unions need to develop more sophisticated metrics for their risk management, including more rigorous procedures and benchmarks. Risk scores can give you information about relative risk. Credit unions need to track additional signals: how people use their cards, changes in direct deposits and payoff amounts.

Brian Scott: Credit unions don’t take enough risks. The FICO score shouldn’t be your only risk indicator, you need to dig deeper. Someone will issue the consumer a credit card, your job is to manage your own risk while taking risks.

Goals and Benchmarks

Brian Scott: When somebody is opening an account, there’s no better opportunity to offer a credit card. Your goal should be 35 percent of your checking account customers owning a credit card. The second hurdle is to get members to use their credit on a continuous basis.

Ondine Irving: When you establish goals, you need to base them on the percentage of your total loans. Up to 25 percent of your loans should be in unsecured loans. Credit cards should be 10-15 percent of your overall loans.

How to Manage Your Credit Card Portfolio

Ondine Irving: There are no influential champions for credit card programs in credit unions. Successful management of credit card portfolios is done top down, preferably led by the executive team.

Tim Kolk: Agreeing with Ondine Irving, Kolk described credit card portfolio management as a legacy program and purely operational. He recommended credit unions run these programs by people skilled in analytics and project management with a direct line to the executive team. Ondine added that the right people have to be passionate about credit cards.

What is a Good Credit Card Pre-Approval Response Rate?

Tim Kolk: In the end, it comes down to the cost for a net-converted account, not the response rate. The financial industry has a response rate of 0.40-0.50 percent, credit unions in general have a higher response of around 1 percent.

What About Members With Low FICO Scores?

Ondine Irving: You need to look beyond the credit score: employment history, payment history, etc. A total of 70 percent of your income should come from finance charges to run a profitable credit card program. While you want to offer secured card programs, you can’t rely on them since these cards are not very profitable. Credit unions have to find ways to move members from secured to unsecured cards.

How Should Credit Unions React to Aggressive Rewards Programs by Banks?

Brian Scott: Rewards and offers don’t have to be exorbitant to get new customers. Aggressive rewards are best to get completely new customers; the opportunity for credit unions lies in getting current customers to add credit cards to their credit union portfolio.

Ondine Irving: One of the best opportunities to develop stronger relationships with members is to offer rewards across all products and services. As an example, a credit union offered auto loans tied to 25,000 credit card points, allowing members to take a flight anywhere in the United States, once the auto loan was approved.

What are Other Ways of Driving Up Credit Card Usage?

Credit unions can combat the zero percent balance transfer offered by banks through financial education, communicating the hidden fees. Credit card offerings should be more visible; give members the opportunity to be educated and compare bank and credit union products.

When people change their credit card usage, systems should be in place to discover those changes. These are the moments where you need to intercept members and reward to increase their usage again.

CO-OP Financial Services and FSCC Combine

• Unifies shared branching operations
• Blends strength and value
• Over 1,750 participating credit unions
• Over 4,500 physical branch locations
• Plus 2,200 Vcom kiosks in 7-Eleven stores

Benefits: Greater efficiencies in branding, technology and administration.

CO-OP Financial Services Acquires Corporate Network eCom

• Enables CO-OP Financial Services to offer full-bodied pay solution to clients immediately
• CO-OP Bill Pay announced on April 26, 2012
• We offer competitive pricing, superior service and flexible options

CO-OP Financial Services Partners with The Members Group

• Includes strategic investment by CO-OP in The Members Group
• Both companies will cross-sell selected products and services
• Provide credit unions with a single point of entry to the most innovative, tailored, cost-effective products and services as they prepare for next-generation banking

What does this all mean to credit unions?

• Access and convenience to your members
• Enhanced relationships with members
• Compete with any bank
• Greater operational efficiency
• Helps you to be more profitable

What’s next for CO-OP Financial Services?

• In 2012, we entered the execution phase on our strategic initiatives of 2011
• Industry-leading products: CO-OP NextGen ATM, CO-OP Bill Pay, P2P and two-way video member service at the ATM
• Ongoing support and leadership in our movement’s legislative, regulatory activities

Service to the Movement

• Helped prepare clients for Durbin
• Supported efforts resulting in improved Federal Reserve Board rules
• Active in solutions to Corporate dilemma
• Leadership in EPC and EFTA

Value Added Services

Of You. For You.

• CO-OP Ad Lab
• ATM Signage Program
• TechTrend Webinars
• CO-OP User Meetings
• Training Department
• White Papers

THINK

• Website/Blog
• Conference
• THINK Prize
• Magazine
• Conference take-away brochure by mid-May.

Miracle Match from CO-OP Financial Services

• Annual $1 million program benefiting Children’s Miracle Network Hospitals
• 165 credit union events – 47 new, a record.
• 70 hospitals benefited in 38 states
• $2.7 million raised in total.

CO-OP Financial Services is your strategic partner, offering the tools, counsel and leadership to help credit unions prosper.

Creativity, Reinvention, Cult Brand

The annual THINK conference, with the 2012 edition getting started on April 29, was created to put a fresh perspective on the challenges and opportunities faced by credit unions every day. Hosted by Valerie Coleman Morris, a financial journalist and author, this year’s THINK conference is programmed around the core themes of Creativity, Reinvention and Cult Brand.

Creativity

Doug Rauch, former Trader Joe’s President, will talk about his experiences and how creativity helped him transform a small grocery store chain into a national powerhouse, and how you can apply creative thinking to the problems facing your credit union. Dr. Jeff Norris, supervisor of the Planning Software Systems Group at the NASA Jet Propulsion Laboratory, will discuss “Mission-Critical Agility”: the skill to adapt to constantly advancing technologies, shifting priorities and relentless competitive pressures.

Reinvention

Billy Beane, General Manager of the Oakland A’s and protagonist of Michael Lewis’ “Moneyball”, identified undervalued assets to create and sustain a competitive advantage and will share his key principles. Jeff Baxter, consultant to the Department of Defense with a high-level security clearance in the Pentagon, will discuss how to apply knowledge gained in one area to advance goals in completely different fields.

Cult Brand

Alexis Maybank, founding CEO of Gilt Groupe, will offer credit unions proven strategies for creating brands that inspire passionate devotion in consumers. Chris Berman, ESPN anchor, will take conference attendees through the history of the brand, and impart some of the lessons learned along the way as the company transitioned from start-up to contender to leadership brand.

Last but not least, Brett King, author of Bank 2.0 and strategic advisor, will be an important part of THINK 12, examining in-depth how customer behavior and technology will change the future of financial services.

We are looking forward to an insightful conference that will contribute to the change that will inevitably take place.

If you’re not able to attend this year, please make sure to follow us on Twitter and Facebook for updates and insightful conversations.

How do we know? Among the most emailed stories on the New York Times site last week was this piece about how banks are dealing with stalled revenue growth by cutting jobs. Big banks are having a hard time figuring out how to make money these days.

Credit unions are having their struggles, too. But unlike big banks, credit unions have agility – and, we think, the will to grow.

Certainly, here at CO-OP, growth (that is, your growth) has become a near obsession. This isn’t entirely new. CO-OP has a long history of working with credit unions to develop products and services that enable growth and profitability. But since the latest financial crisis hit, helping our members bring in more money, improve profitability and deepen member relationships has been our absolute priority.

When you grow, of course, we grow. But over the past few years, it’s become evident that simply offering great products and services isn’t going to make us a great partner. We’ve been listening to what members are concerned about, beating the bushes for the best strategies and innovations, and looking for new ways to deliver news that members can use. What tools will make a difference to your credit union right now? How do they apply to your organization?

On the CO-OP Growth Initiative site, look for fresh approaches to member engagement and smart ideas to boost bottom line growth. You’ll find out how to use CO-OP Member Center to drive new loans, leverage remote services like CO-OP My Deposit to keep members happy, and manage vendor relationships to maximize profits. Through white papers, webinars, case studies and a growing wealth of compelling content, you’ll find food for thought – and action.

In all the discussion we’ve had here at CO-OP about growth – internally, with our members and throughout the industry – one thing has become clear. The financial services industry has changed so substantially that the only way forward is to grow.  That isn’t bad news. With change comes opportunity. Armed with the right information and inspiration, growth is not only possible: It’s exciting.

For credit unions with under $10 billion in assets, your interchange rates are likely to show little or no decline for the remainder of 2011. For these institutions, we believe all networks will implement a two-tier system maintaining interchange at rates near the current $0.44 per transaction average. All members of the Fed expressed concern over their inability to enforce the exemption and were clearly exerting influence on the networks. In addition, a consensus item was adopted to report data regarding the exemption over the next 18 months.

For non-exempt institutions, the Fed set the interchange fee cap at $0.21 per transaction, with an ad valorem component of five basis points of the value of a transaction to reflect a portion of fraud losses. Additionally, a fraud-prevention adjustment of $0.01 is available to issuers that implement effective fraud prevention policies and procedures.

The higher cap is clearly an improvement on the proposed $0.12 cap. The Fed obviously heard our concerns expressed in the historic grassroots campaign conducted by credit unions, leagues and industry associations. We can all take pride in this and related changes found in the rules.

It was also good news that the more manageable version of the exclusivity provision was adopted, meaning that issuers will need to belong to two independent networks, such as one PIN and one signature network, as long as they are unaffiliated.

If your credit union is currently VISA-exclusive (VISA for signature and Interlink for PIN) or MasterCard-exclusive (MasterCard for signature and Maestro for PIN), you will need to add an unaffiliated PIN network (such as STAR, Pulse or NYCE). You do not need to add a second signature network to be compliant.

Thankfully, the less manageable exclusivity provision requiring two unaffiliated networks for each type of authorization (PIN and signature) was not included in the final rule.

The effective date for interchange fee caps is October 1, 2011, while the deadline for compliance with the exclusivity provision is April 1, 2012.

CO-OP is confident that our industry associations will continue to work with the Fed to improve the rule further to ensure small issuers are protected from the impact of the debit interchange limits, as Congress said they would. We will also continue to keep you informed of these developments.

Thank you.

CO-OP Financial Services